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12th November 2023 > > Taxes.


The announcement of futile tax initiatives on an international level simply highlights one of the revolutions we can look forward to because of cryptos.

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Now this is a rare scenario indeed.

I cannot recall seeing BTC perpetual futures funding rates at such an elevated level. Across all providers of perps and all cryptos, almost without exception, funding rates are higher than the neutral level.

This is dangerous territory to be in. Even a small piece of bad news could quickly escalate across the entirety of the crypto world, turning a small sell-off into a much larger one as the leveraged children get eaten again by their own greed (sorry Larry, don’t take it personally).

Still, that would give spot hodlers plenty of juicy prices at which to add.

Curious Cryptos’ Commentary – Crypto taxes

Crypto taxes are a thorny subject.

The implementation of world-leading crypto regulation MiCA within the EU is attracting centralised crypto businesses to set up shop in Europe, mostly in Ireland because of its status as one of the two largest tax havens in the world. MiCA attracts tax dollars in the form of corporation tax, income tax, and taxes levied on the additional commerce created around these new businesses. EU lawmakers and the Irish government are very happy with this outcome.

Meanwhile there are legitimate concerns that the use of cryptos might enable tax evasion from individuals, in the same way that the use of cash has always facilitated not paying VAT, income tax, corporation tax, national insurance, and so on. Some of the more irrational crypto naysayers seem to believe that tax evasion and money laundering never existed in the pre-crypto age, but to say they are limited in their intellectual capacity is the kindest way of putting it.

To mitigate this risk of tax evasion, fifty countries have signed up to CARF (Crypto-Asset Reporting Framework):

The introduction tells us:

"To keep pace with the rapid development and growth of the crypto-asset market and to ensure that recent gains in global tax transparency will not be gradually eroded, we welcome the new international standard on automatic exchange of information between tax authorities developed by the OECD – the Crypto-Asset Reporting Framework (CARF). The widespread, consistent and timely implementation of the CARF will further improve our ability to ensure tax compliance and clamp down on tax evasion, which reduces public revenues and increases the burden on those who pay their taxes.”

The scope of this directive is mind-boggling.

It requires all countries who sign up to exchange information on all crypto transactions within their jurisdiction. Quite how that can be achieved, and how it can determine whether a particular individual has been less than fully transparent in declaring their crypto gains is not explained, given the anonymous nature of most crypto transactions whose geographical location is unknown. Use of AI may help in the latter respect, but we are a decade or more away from the integration of AI into the bureaucracy of the tax infrastructure. Meanwhile, armies of data-processing civil servants will have to be recruited, none of whom can ever be fired, and whose burden on the nation’s tax resources will continue up until their final pension payment.

Despite the success of MiCA, the EU is not content with being out bureaucratised by CARF. In response, the Council of the European Union has adopted a measure (DAC8) that allows tax collectors to monitor and evaluate every cryptocurrency transaction within the EU.

Again, the same criticisms of CARF can be laid against DAC8.

In short, these are unworkable initiatives that allow cover for the political elite to hide from legitimate criticism of their approach to the integration of the decentralised world.

The centralised and decentralised worlds need on-off ramps between them, but much of the decentralised world will forever remain outside the remit and control of centralised structures of bureaucracy, with far-reaching implications for an equitable and just tax system.

The only viable long-term solution is to move the entirety of the tax base to a consumption tax on physical, real-world goods, for man shall not live by digital assets alone.

The benefits of a consumption tax base are manifold.

Its simplicity and elegance reduce the tax code to tens of pages, not tens of thousands of pages, putting legions of tax accountants and tax lawyers out of work, lowering industry’s cost of capital at a stroke. It can be designed to be as progressive as you want it to be, whatever that may mean to you, and the forecast of tax revenues – a much misunderstood and undervalued benefit to society – much simpler and more accurate than today. The alignment of the tax system with a political party’s social objectives will be made transparent, improving the democratic process.

This will be the endgame in respect of taxes brought on by the crypto revolution, but I confess its implementation will not be in a timely fashion.

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